Offshoring: more consideration needed

commentary Although offshoring is becoming a popular trend, companies need to consider all the consequences before sending work overseas.Such a decision should only be made with pilot programs, benchmarking, and an analysis of medium and long term business impacts, such as exchange rates, geopolitical factors, social impacts, and more.



commentary Although offshoring is becoming a popular trend, companies need to consider all the consequences before sending work overseas.

Such a decision should only be made with pilot programs, benchmarking, and an analysis of medium and long term business impacts, such as exchange rates, geopolitical factors, social impacts, and more.

It's a daily challenge for every business -- to maximise outputs while minimising the cost and resources required. Technology has always played a critical role in streamlining and automating processes to increase efficiency and reduce overheads.

According to an article in the Wall Street Journal, enterprises today spend 47 percent of their business capital on ICT, up from just 20 percent in 1990. Given that figure, it's hardly surprising organisations are actively looking for ways to cut their ICT spend.

During the '80s and '90s, many firms turned to outsourcing to try and trim excess fat from their ICT budgets. Today, the trend is offshoring, as organisations move to take advantage of lower salaries for ICT professionals in developing countries.

It's a trend that's sparked more than a little controversy as organisations defend their right to make commercial decisions in the face of anger from displaced ICT workers struggling to find their place in a changing industry.

The ACS recently released its Offshoring Policy, a document that was warmly welcomed by the Federal Government, the Opposition, and the union movement. Key to the policy's acceptance is the accompanying ACS Offshoring Cost-Benefit Checklist, which is designed to assist Australian enterprises and government agencies in making a considered decision about whether or not to offshore part of their ICT operation.

The Checklist provides a detailed assessment framework encompassing the following key areas: identify outputs or benefits and costs; consider your corporate reputation; who makes the final decision?; the national security test; identify risks; and monitor and review performance.

While I agree that companies must have the right to determine their own destiny, I am concerned at the number of times it appears projects have been offshored as a knee-jerk reaction without proper costings or benchmarking.

Our industry has a history of creating hype around new panaceas, which encourages organisations to embrace them in the mistaken belief that everyone else is doing it so they must as well. Inevitably there is a market correction when reality overcomes the hype, and we've often seen businesses have to back-track to their previous position because the so-called solution didn't fulfil its promise.

Organisations that make these choices on the basis of short-term savings alone may be setting themselves up potential negative publicity and unpredictable customer service levels. An offshoring investment decision requires analysis and an understanding whether short-term savings can be sustained. Any cost saving alternative has a risk that in the medium and long term, it may cost more than expected, take longer to deliver benefits or may be delivered with less customer satisfaction.

Therefore, such a decision should only be made with pilot programs, benchmarking, and an analysis of medium and long term business impacts, such as exchange rates, geopolitical factors, social impacts, and more.

While acknowledging the right of businesses to explore new ways to reduce their costs and increase their competitiveness, the ACS has created the Offshoring Cost-Benefit Checklist in the hope of achieving a "soft landing" for the ICT sector.

This would mean companies undertook a detailed assessment of the costs and benefits associated with offshoring before they took that step, thus avoiding a situation where 450 jobs were initially sent offshore, only to have the company later realise that 150 would have meet the need.

Of course, there is no soft landing for the individuals whose jobs are displaced by offshoring. The ACS is working with the Government to consider retaining opportunities to help get displaced professionals back into workforce as quickly as possible.

To obtain a copy of the ACS Offshoring Cost-Benefit Checklist, please contact Dennis Furini, ACS Chief Executive on 02 9299 3666 or e-mail execsec@acs.org.au.

ACS
Edward Mandla is National President of the Australian Computer Society (ACS). The ACS attracts a membership (over 16,000) from all levels of the IT industry and provides a wide range of services. The Society can be contacted on 02 9299 3666, or email info@acs.org.au.

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